Magazine Article | September 1, 2001

An Unexpected Gift

Source: Innovative Retail Technologies

Gift cards are high on retailers' shopping lists this year because they serve as more than just a customer service - gift cards can increase sales and unwrap new marketing opportunities.

Integrated Solutions For Retailers, September 2001

Give your customers a gift that will keep on giving back to you. Consumers' wallets are becoming stuffed with plastic cards for everything from loyalty programs to credit cards; but one kind of card on the rise in retail stores, and in consumers' pockets, is gift cards. Standard Register (Dayton, OH) conducted a survey of 1,000 Americans and found that 45% of adults have used a gift card in the last year. In fact, since the plastic cards have replaced their paper counterparts at many of the major retailers in the country, consumers are surprised when they are delayed at the checkout to fill out a paper certificate. "Retailers lock paper gift certificates away in drawers or the back office because they need to be treated like cash," said Karen Budahazy, VP of marketing for Givex Corp. "Since the paper gift certificates are so difficult to control, retailers don't go out of their way to promote them. Many times they are just considered a customer service." Electronic gift cards can continue to provide customers with a service, while giving retailers the benefit of database tracking as well as increased sales and new marketing opportunities.

Gift Certificates: A Dead End
Gift card technology turns the management of gift programs over to a third party, allowing retailers to concentrate on sales rather than paperwork. "By allowing a third party to manage gift card databases, retailers don't have to worry about keeping up with the additional volume the cards create. It is cost prohibitive for retailers to manage the databases themselves," said David Baumgartner, sales engineer at ValueLink.

Retailers might not want to manage the data, but they certainly want the customizable reports that show sales patterns in regards to gift card usage. A database report shows how many cards are outstanding, how many still carry a balance, or even how many of a certain design sold over another. This is something paper gift certificate programs never provided. "If I give you a $20 gift card and you go to the store and spend $50, that retailer just got a $30 uplift in its sales. Typically, paper gift certificates did not allow retailers to track that information," Baumgartner said. "Retailers could not tell what their gift certificate programs were doing for them."

In The Market For New Marketing?
In the consumer's mind, gift cards are more appealing than traditional gift certificates. Whether the reason for this preference stems from the look or size of the cards, the fact is that these gifts make an attractive purchase for consumers and a simple marketing piece for retailers. "As part of a direct mail campaign for a new store opening or holiday sale, a retailer could send a consumer a $5 gift card instead of a $5-off paper coupon," said Jerry DeWitt, director of marketing at ValueLink. "A card can be tracked as a coupon can, but will be perceived as having a higher value to the consumer than paper."

Since the cards are not live until they are activated at the POS (point of sale), retailers can display gift cards at the checkout or in the aisles. Both DeWitt and Budahazy said retailers have doubled their gift card sales because they were able to make the gifts more visible to their customers. Customer acceptance and flexibility has led to creative uses for the cards such as corporate incentives. Companies can buy gift cards from local grocery stores, for example, to give away as holiday bonuses. Retailers have also sold gift cards at a discounted price to nonprofit organizations to use as a fundraiser.

In the future, Budahazy thinks retailers will begin co-branding cards for customers to use the same card at a health club and a nutrition store. "Because of the tracking and control mechanisms, retailers can distinguish where the cards were activated and spent," Budahazy said. And gift cards will not be limited to the brick-and-mortar world. Retailers can add gift cards to their multichannel selling strategies by allowing customers to buy or redeem gift cards online or through a catalog call center as well. Since the card is electronically maintained, consumers also have the option to reload the card using it as a private label debit card. This is an attractive option for parents who are hesitant to give their children credit cards. Like those on the receiving end of gift cards, now even retailers have a reason to say thank you.

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